Harrah's Entertainment - Preparation & Reflection

Harrah's Entertainment Case

Preparation:

Harrah’s Entertainment, Inc. (or simply Harrah’s) is assuming a leadership role in the gaming industry through a business strategy that focuses on knowing their customers well, giving them great service, and rewarding their loyalty so that they seek out a Harrah’s casino whenever and wherever they play.  The execution of this strategy has involved creative marketing, innovative uses of information technology, and operational excellence. These component parts first came together in 1997 and have resulted in many benefits, including:

·         A doubling in the response rate of offers to customers;

·         Consistent guest rewards and recognition across properties;

·         A brand identity for Harrah’s casinos;

·         An increase in customer retention worth several million dollars;

·         A 72 percent increase in the number of customers who play at more than one Harrah’s property, increasing profitability by more than $50 million; and A 62 percent internal rate of return on the information technology investments

Business Strategy:

The decision to expand into additional gaming markets was a critical part of Harrah’s business strategy.  The growth of these markets was considered to be inevitable and helpful to Harrah’s and the industry.  As management thought about how it could create the greatest value for its shareholders, it was decided that a brand approach should be taken. With this approach, the various casinos would operate in an integrated manner rather than as separate properties.  This was a radical paradigm shift in the gaming industry where casino managers historically ran their properties as independent fiefdoms and marketing was done on a property by property basis. With the new approach, there would be commonalties in the gambling experience for customers across the various casinos.  Advertising and offers would promote the Harrah’s brand.  There would be recognition and reward programs for customers who cross-played at more than one of Harrah’s properties.  Harrah’s mission was to build lasting relationships with its customers. 

Critical to their strategy was the need to understand and manage relationships with their customers.  They believed that strong customer service relationships build on a foundation of customer knowledge. To build this foundation, Harrah’s had to learn about their customers’ behaviors and preferences.  They had to understand where their customers gambled, how often they gambled, what games they played, how much they gambled, and what offers would entice them to visit a Harrah’s casino.  Armed with this information, Harrah’s could better identify specific target customer segments, respond to customers’ preferences, and maximize profitability across the various casinos.

A key addition to the Harrah’s management team was Gary Loveman who was named COO.  This former Harvard professor had the understandings and skills needed to analyze customer behavior and preference data and to put programs in place to capitalize on this knowledge.  He helped make Harrah’s customer relationship management strategy a reality.

To generate the necessary data, Harrah’s had to make a substantial investment in information technology.  It had to capture data from customer touch points, integrate it around the customer, and store it for later analysis.  In order to understand customers’ preferences, Harrah’s had to mine the data, run experiments using different marketing interventions (i.e., special offerings), and learn what best met customers’ needs at the various casinos.  From these requirements, Harrah’s Winners Information Network (WINet) emerged.

Patron Database:

At the end of the day for each source system (the definition of  “end of day” varies with the system), relevant data is extracted for loading into the PDB.  First, however, validity and “saneness” checks are performed.  Checking for a valid address is an example of a validity check.  A saneness test checks whether the data is reasonable, such as the “drop” from a 25 cent slot machine (e.g., a $1000 drop in an hour is not reasonable).  Data that fail a test are placed in a suspended file and manually reviewed.  At 7:00 a.m., the data is loaded into PDB.  The load is completed and available for use by noon.  In terms of source systems, no matter which casino a customer goes to, the details of every visit are captured and ultimately find their way into PDB.  The data is available by customer, casino, hotel, event, gaming product, and tracked play.  Every customer is assigned an identification number, and the data about the customer are joined using the ID as the primary key.  Unless needed (e.g., such as with a promotional offer), customer names and address are not used with Harrah’s applications. 

 Total Rewards:

Total Rewards is Harrah’s customer loyalty program.  It tracks, retains, and rewards Harrah’s 15 million customers regardless of which casinos they visit over time.  Total Rewards was originally introduced as Total Gold in 1997, but it was renamed in July 1999 when a three-tiered card program– Total Gold, Total Platinum, and Total Diamond – was introduced to give more recognition to Harrah’s most active and profitable customers.  Customers accumulate Reward Credits (points) based on their gaming and other activities at any of Harrah’s properties.  These Reward Credits can be redeemed for comps on hotel accommodations, meals, and shows and cash can be redeemed at any property.  At specified Reward Credit thresholds, customers move to the next card level (e.g., from Gold to Platinum) and qualify for the privileges associated with that level (e.g., preferred restaurant reservations and seating, priority check-in at hotels).  Customers can check their Reward Credits at any time by entering their card into a slot machine or kiosk or by logging in to harrahs.com.  Total Rewards members are also sent offers of cash and comps for use at local Harrah’s casinos and destination resorts such as Las Vegas and Lake Tahoe.  Figure 4 shows a customer’s view of the Total Rewards program.

Close Loop Marketing:

Like other casinos, Harrah’s previously extended offers to customers based primarily on observed gaming worth over the years; “Harrahisms” for what did and did not work were developed but were never tested.  With WINet, the foundation was in place for a new, more scientific approach.  Campaigns could be designed, tested, and the results retained for future use.  This data-driven testing and learning approach is called “closed loop marketing” and is shown in Figure 5.  Its goal is to learn how to influence positive changes in customer behavior. Harrah’s can learn what types of campaigns or treatments provide the highest net value. 

Closed-loop marketing begins with a definition of quantifiable marketing objectives, characteristics of the test procedure, and expected values of the customers selected for the test, who are divided into experimental and control groups. Based on what is already known about their gaming customers, the test campaign (customer treatment) is designed to provide the right offer and message at the right time.  The selection of the customers and their treatments are based, in part, on Harrah’s Customer Relationship Lifecycle Model, which is shown in Figure 6.  Customers are offered customized incentives designed to establish, strengthen, or reinvigorate the relationship depending on their positions on the customer lifecycle and the time since their last visit.  For example, a new customer might have characteristics that suggest that the customer has high lifetime potential value.  Harrah’s is likely to make an exceptionally generous offer to this customer in order to build a relationship.  Or, an analysis of the customer data may reveal that a customer is “past due” to visit a Harrah’s casino based on their previous gambling history.  This kind of customer is also likely to receive a targeted message and offer in order to reinvigorate the relationship.

Each customer’s response to the campaign is tracked and analyzed in detail. Not only are response rates measured, but other metrics as well, such as revenues generated by the incentive and whether the incentive induced a positive behavior change (e.g., increased frequency of visit, profitability of the visit, or cross-play).  Based on the net value of the campaign and its profitability relative to other campaigns, Harrah’s learns which incentives have the most effective influence on customer behavior or provide the best profitability improvement opportunities. This knowledge is used for continuous refinement of marketing approaches. Literally thousands of experiments of this kind have been conducted.

IMPACT:

Harrah’s business strategy and the use of information technology are unique in the gaming industry and are more like the approaches taken in retail and financial services.  The results are impressive and other casinos are copying some of Harrah’s more discernible methods.  Harrah’s stock price has risen in response to a doubling of the company’s earnings over the past year.  The creation of the Harrah’s brand, Total Rewards, and cross marketing have resulted in a 72 percent internal rate of return on investments in information technology. 

The effectiveness of Harrah’s closed loop marketing approach can be seen by how it has affected “same-store sales” (i.e., gambling revenues at a single existing casino).  In 1999, Harrah’s experienced truly significant “same-store sales” revenue growth of 14 percent, which corresponds to an increase of $242 million over 1998.  Harrah’s grew revenues faster than their competition almost everywhere they do business – in some cases doubling and even tripling the market average of “same-store” sales. 

Harrah’s has left little to chance.  It has invested more than $100 million in computers and software to develop what is widely regarded as the industry's most sophisticated "frequent bettor" program.  With the Total Rewards program, which contains the world's largest database of casino customers, they have been able to create sustainable loyalty, a dominant competitive advantage, and insulate the business from local market volatility. 

Their innovative idea was to grow by getting more business from Harrah's existing customer base. This approach was in contrast to the prevalent strategy of building ever more elaborate and splashy new casinos. Gary W. Loveman refers to their success as "the triumph of software over hardware in gaming." 

The Total Rewards program has increased traffic in Harrah's casinos, and marketing programs driven by data from the warehouse are increasing retention.  Keeping customers goes right to the bottom line.  An increase in retention of just 1 percent is worth $ 2 million in net profit annually. So far, Harrah's is enjoying an increase in retention of a couple of percentage points, thanks in large part to its data warehouse.

Closed-loop marketing is contributing to Harrah’s competitive advantage.  According to Tracy Austin, vice president of Information Technology Development, by combining product information with customer behavior, “no one can touch us.” Overall, the data warehouse is turning up nothing but aces for Harrah's.  Harrah's "gamble" on technology is paying off.

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Reflection:

Harrah's Entertainment has had significant changes over the course of its life time especially in regards to the areas of business intelligence and data mining . As we brought in the consulting team, "Four Experts", I was interested to hear about the lessons learned (or should have learned) and the actionable items that we could use to enhance our business strategy going forward. In the past, I usually was quick to be able to grasp concepts and make a decision based on the information at hand. However, this presentation required a bit of reflection. The presentation itself was a bit confusing as the slide preparations didn't offer much detail. I respect that the presentation had a flow of pictures but the representative output wasn't aligned. It seemed almost a requirement to have to look back and try to remember what was explained or meant by several of the slides on the provided deck. Additionally, there seemed to be some lack of cohesion in what was meant in certain instances. One example can be found in the following:

After the presentation, the various questions and answers surrounding the consultants definition of "model" customers could have been better. On a positive note, some of the consultants did offer interesting insight but in order to develop a plan of action we will need to look at some items more in depth. In order to do so, I looked at some additional sources.

The following is extracted from "Diamonds in the Data Mine" by Gary Loveman

https://faculty.unlv.edu/wrewar_emba/WebContent/Loveman_DataMining.pdf

"Meeting budget at the expense of service is a very bad idea. If you’re not making the numbers you don’t cut back on staff."

"We implemented a bonus plan to reward hourly workers with extra cash for achieving improved customer satisfaction scores, which we culled from very detailed customer surveys. If a property’s overall rating rose 3% or more, each employee could earn 75$ to 200$. What has made the bonus program work is that the reward depends on everyone’s performance. If the valet’s scores were low but the steak house receptionist’s were high, the receptionist would check in on the valet. Likewise, if one property received low scores and another high ones, the general manager of the lower scoring property might visit his colleague to find out what he could do to improve his property’s scores."

Having looked at some further detail, my suggestion is a little different than the consultants. I recommend that we continue to look at customer service as a primary objective regardless if the customer is a low roller or a high roller. We need to ensure that we retain those customers that we have as well as attract new ones. Additionally, the landscape of gaming business could change as technology improves. There might be more casino's or a different take on consumer gaming that could shift our attention. In order to stay on top of the potential considerations, the two ultimate decisions should be to first focus on all customers (those currently existing and those new potential ones), and second to consider a long term plan with another giant in the industry. We can manage potential threats by reducing our competition if we either merge or acquire them. The second option is a long term plan that needs to be considered, but in the short term we should focus on all customers.